Tax Type
Retail Sales and Use Tax
Description
Services; Professional or personal; Video production company
Topic
Taxability of Persons and Transactions
Date Issued
03-29-1993
March 29, 1993
Re: §58.1-1821 Application: Retail Sales & Use Tax
Dear************************
This is in reply to your letter of August 11, 1992 in which you are appealing a sales and use tax audit assessment for the period March 1989 through February 1992 on behalf of ********** (the "Taxpayer").
FACTS
The Taxpayer is a full-service video production company which specializes in the production of video tapes (hereafter referred to as "tapes") on a wide range of technical subjects. The video production involves engineering and technical consulting, professional narration, music dubbing, camera operation, computer graphics development and creative support, post-production editing, scriptwriting, and a host of other services. The Taxpayer holds that the charge for such tapes, which include many of these professional services, represents the rendering of a service that is exempt under Virginia Regulation (VR) 630-10-97.1. The Taxpayer also states that some of its charges for tapes involve providing advertising to its clients, and therefore, the Taxpayer qualifies for the advertising exemption under VR 630-10-3.
DETERMINATION
Services
Va. Code §58.1-608(A)(5)(a) provides an exemption from the sales and use tax for "[p]rofessional, insurance, or personal service transactions which involve sales as inconsequential elements for which no separate charges are made...." VR 630-10-97.1 provides that in determining whether a particular transaction involving both the provision of services and the sale of tangible personal property is taxable, the "true object" of the transaction must be examined. If the true object of the transaction is to secure a service and the tangible personal property which is transferred to the customer is not critical to the transaction, then the transaction may constitute an exempt service. However, if the true object of the transaction is to secure the tangible personal property which the services produce, then the entire charge, including services provided, will be taxable.
Although the production of tapes includes personal services, such as engineering and technical consulting, professional narration, etc., I find that the true object of the transaction is for the buyer to obtain a completed tape. The images and information contained on the tape would not be useful without the actual tape. Therefore, the sale of such tapes, are subject to the tax and will remain in the audit. This identical conclusion was reached in WTAR Radio-TV Corporation v. Commonwealth, 217 Va. 877, 234 S.E. 2d (1977), copy enclosed, in which the Virginia Supreme Court held the transactions involving the sale of audio tapes to be taxable tangible personal property.
Advertising
Va. Code §58.1-602 defines advertising, in pertinent part, to mean:
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- The planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media, including without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.
- The planning, creating, or placing of advertising in newspapers, magazines, billboards, broadcasting and other media, including without limitation, the providing of concept, writing, graphic design, mechanical art, photography and production supervision.
As an advertising business, charges to the Taxpayer's clients for producing tapes in conjunction with an advertising campaign are exempt from the tax and will be removed from the audit. However, charges to clients for duplicate copies subsequent to the advertising campaign would be subject to the tax and will remain in the audit.
This exemption, however, is clearly limited to sales of advertising. Thus, the total charge for tapes not intended for use by the client in an advertising campaign is taxable and will remain in the audit. Examples of such items may include tapes on technical subjects, tapes used to provide in-house information or training, tapes used to motivate employees to increase performance or production, and tapes used to record notable activities, special events or documentaries.
Accordingly, the audit will be revised by the*************District Office as set forth above. However, additional information regarding the tapes used in advertising will need to be provided to that office within 30 days so that the necessary revisions can be made. Once the revisions are completed, a corrected Notice of Assessment will be issued.
I have enclosed copies of PD 89-261 dated September 28, 1989, PD 88-245 dated August 26, 1988 and PD 88-149 dated June 20, 1988 which will give additional information on the treatment of video production businesses. In addition, the Department is in the process of revising the present advertising regulations. I have placed your name on the mailing list to received the proposed revisions when they become available.
Sincerely,
W. H. Forst
Tax Commissioner
OTP/6361N
Rulings of the Tax Commissioner